Berlin project has room to grow

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2012-12-14

Revenue from by-products phosphate, vanadium and yttrium will more than pay for the mining and extraction of uranium oxide at U308 Corp.’s (UWE-T, UWEFF-O) Berlin project in Colombia, according to a preliminary economic assessment.

The deposit, about 140 km west of Bogota and 100 km southeast of Medellin, is expected to be mined from underground and produce an average of 1.2 million pounds of uranium a year over a mine life of fifteen years from a 500,000 tonne-per-year operation.

At a uranium price of US$60 per lb., the average reported price for long-term contracts over the previous 12 months, the mining operation should produce revenue of about US$430 per tonne against operating costs of US$240 per tonne, according to the PEA, which was six months in the making.

The base case post-tax net present value at a 5% discount rate will be about US$260 million and the post-tax internal rate of return 12%.

Capital costs of US$437 million include sustaining capital of US$31 million and a US$41 million contingency.

The Berlin deposit is expected to generate US$3 billion in revenue with free cash flow of US$892 million over its mine life.

The PEA was based on an initial uranium resource taken from just one third of the property. Currently, indicated resources stand at 1.5 million lb. uranium oxide grading 0.11% U308 and 19.9 million lb. of 0.11% U308 in the inferred category.

The resource was defined on three kilometres of the 10.5 km Berlin trend and exploration drilling has demonstrated that similar grades and style of mineralization extend over a further 3.3 km of the trend, Richard Spencer, the company’s president and chief executive says.

“This is the most astounding deposit,” Spencer told The Northern Miner. “You can take two pieces of core from five kilometres apart, put them together, and they’re absolutely consistent. It’s mind-boggling. The only place that comes close to it is the Wits Basin in South Africa where you have uranium and gold-bearing conglomerates that go on for miles and miles.”

Spencer is confident the company can get the resource up to the 45-50 million pound range from the next 3.5 km portion of the trend that was not included in the resource estimate and increase the overall deposit to 60-80 million pounds after drilling the northern-most 4 kilometres of the trend. “We haven’t drilled that yet but we’ve got exploration trenching that shows the same style of mineralization so we feel this is going to be a really, really big deposit.”

Meanwhile, extensive metallurgical work has started paying off with a process route designed to efficiently extract the deposit’s multiple commodities: uranium (33% of revenue), phosphate (29%), vanadium (9%) and yttrium (10%). The first step is to beneficiate the mineralized material using acetic acid to remove calcite and concentrate the valuable commodities into 40-47% of the original mass, which makes the subsequent extraction and recovery processes more efficient, reduces capital and operating costs and decreases the volume of tailings by 50-60%. The second step is the extraction of the metals and phosphate into a pregnant liquor solution by an acidic ferric iron leach method. The third step is recovering the individual elements by conventional ion exchange, solvent extraction and direct precipitation.

“The reason flotation is so important is that it would take a lot of the calcite out of the system right up front and the calcite is what pushes up the operating costs becuase it consumes acid,” Spencer explains. “Then ferric leach would deal with extraction of the metals (yttrium and neodymium and vanadium) from the phosphate.”

“What is unusual about Berlin is that it has this strange mix of metals with the phosphate so we use a mixture of ferric leach and sulphuric acid to extract the metals,” Spencer continues, adding that the company has patented the ferric leach component of the process. “The two principal components have been used in other industries for many years and it’s just putting them together that is what makes the process developed for Berlin a little different.”

Spencer adds that when the company saw the first sets of assays coming back they didn’t intend to report the rare earths at all because they didn’t think they would be able to extract them. It wasn’t until they got the initial tests back from the ferric iron and sulphuric acid leach process that they noticed the rare earth recoveries.

“We immediately repeated the tests to make sure there wasn’t some mistake because we were quite astounded,” Spencer continues. “And that’s why we made the patent application because we think the ferric leach combined with sulphuric acid could be a good way for other companies to separate rare earths from many of the other phosphate-bearing rare earth deposits around the world. It’s a no-brainer to add a second step to the ferric leach process, but it hadn’t been done before for whatever reason. We got a bit lucky."

The project also benefits from surrounding infrastructure, including a hydroelectric power plant about 12 km away. U308 Corp. expects to produce about three quarters of its electricity needs internally from the steam that comes off its sulphuric acid plant, but it will also link into the grid for the extra bit of electricity it needs at a commercial cost of less than US$0.10 per kilowatt hour.

In addition, the Berlin project is 60 km west of the town of La Dorada, which sits on the principal paved road between Bogota and Medellin, and has port facilities on the Magdalena River. From La Dorada, U308 Corp. could send its product by barge to the coastal port of Barranquilla, the largest port in the country, from where it can be shipped to destinations in the Caribbean, Central America, southern states in the United States and to countries in the northern portion of South America.

Spencer says that ideally the company would drill about 15,000 metres in 2013 to get the area that’s already been explored into the resource but admits drilling is expensive and at current share prices its too dilutive to raise capital. “We are going to look for partners and if we can find a deal that would make sense we would go for it,” he says, “otherwise we have to hold off on the drilling until the share price or markets get a bit better.”

At presstime in Toronto, the company was trading at 22¢ per share within a 52-week range of 19¢-70¢. The junior has about 124 million shares outstanding.

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